-37-
owned corporations. See Hitchins v. Commissioner, 103 T.C. 711,
718 & n.8 (1994). Consequently, the result here is not
controlled by the Court of Appeals' opinion in Selfe.
In this case petitioner is attempting to alter his basis in
the S corporation by way of journal entries. There does not
appear to be any economic substance to these transactions.
Petitioner did not introduce canceled checks, bank account
records, or any other evidence to provide verification of actual
payment. Cf. Underwood v. Commissioner, supra at 470-471 (the
taxpayer and the corporation exchanged interest-bearing notes,
and the taxpayer actually paid interest and principal). The only
evidence of petitioner's assumption and payment of the corporate
debt at issue is the journal entries made by Lavantucksin.22
Making journal entries attributing indebtedness to
petitioner is not equivalent to economic outlay in terms of
section 1366(d). Therefore, we hold petitioner has not met his
burden of proving that he had any basis in the indebtedness of
Development in 1990 or 1991. Accordingly, respondent is
sustained on this issue.
Issue 3. Whether Petitioners Had Constructive Dividend Income,
or Income From the Forgiveness of Indebtedness of $80,051 in 1989
From Either INI or Spalding
This issue incorporates some of the facts and the holding of
INI, Inc. v. Commissioner, T.C. Memo. 1995-112. For clarity,
22 Petitioner's payment of $54,369 to Cobb Commercial Bank is
not an amount that Development owed to INI. See supra note 8.
Therefore, this payment did not provide him a basis in
Development's indebtedness to INI.
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